Hiring mandates still on the rise, contractors slow to pose a challenge

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Hiring goals can be broken down into two basic categories. There are those that stress the employment of local or regional residents, usually because some local agency has invested taxpayer dollars into the project, and then there are requirements that some percentage of minority-, woman-, veteran-owned or other small, disadvantaged business enterprises be put to work.

The latter is a requirement of many federal, state, county and municipal agencies, but the demand that a contractor’s workforce be made up of a certain number of local residents can only be found from the state level on down. In fact, the Department of Transportation proposed a rule in 2015 that would allow geographic-based hiring for some of its projects but withdrew it in in October of 2017 because "a provision to allow geographic-based hiring preferences is not practicable for the efficient and cost-effective delivery of projects."

Contractors that perform state and local public work no doubt followed with interest the saga of the $863 million Little Caesars arena and its 51% local hiring requirement. Detroit mandated the relatively high level of local participation because of the huge contribution city and state taxpayers made to the project — $35 million in downtown taxes and $250 million in state-issued bonds. In the end, the city fined the venue’s contractors a total of $5.2 million for not meeting the goals, even though one local official acknowledged early on that there were just not enough qualifying residents with the requisite skills.

But certainly state and local governments are in tune with the labor shortage that is making it so difficult for contractors to recruit new workers? Maybe, but at least in some areas of the country, that industry fact hasn’t translated into fewer local and minority hiring requirements.

The regulatory picture

In June, the Denver City Council implemented a pilot workforce program, starting with a $275 million contract with Hensel Phelps for site work at the $1 billion National Western Center project. The provisions of the program require that Hensel Phelps draw employees from a pool of local residents who were either formerly incarcerated, live in economically depressed areas or are veterans. There are no set hiring goals yet, but the WorkNow program could end up mimicking the Colorado Department of Transportation, which has previously used 20% as the mark.

And last year in Chicago, officials upped the hiring goal ante by requiring developers seeking rezoning but who have not received a dime of taxpayer money to hire minority- and women-owned businesses, track their participation and then submit hiring data to the city planning commission. This is on top of the existing minority (26%) and women's (6%) business requirement, and the mandate that city residents work 50% of the hours on a construction project. "The developer community," said Joshua Leavitt, principal at the law firm of Much Shelist, "was very concerned about this. What's significant is that [they receive] no public funds."

But then there are states like Tennessee that have declared such local hiring requirements in violation of state law and have banned their use on public projects in the state.

Trends in hiring requirements, Leavitt said, depend greatly on geographical area and jurisdiction. "In cities," he said, "those efforts are as strong as ever."

According to Louis Coletti, president and CEO of the Building Trades Employers' Association of New York, because of strong industry representation, New York City's capital construction projects aren’t saddled with onerous local hiring goals, but that doesn't mean the city doesn't offer up staffing challenges to its contractors.

"The bigger problem is the MWBE (minority and women-owned business enterprise requirement) all over New York City and upstate," Coletti said. "There are not enough certified minority-owned business construction companies to achieve New York City's 30% goal." The BTEA, he said, has more MWBE contractors than any association in the state and county, and they make up about 10% of the BTEA's membership. Those companies are "loaded with work." However, Coletti added that some MWBE firms experience challenges getting the necessary bonding and securing financing.

So where does that leave the hiring contractors? "If we can't fix the rules, and if public agencies don't stop with the punitive measure for [failing to meet goals]," Coletti said, "I have no doubt at some point we're going to end up in court. Some of my contractors are getting hit for [millions] in fines."

The pressure is on

But contractors haven’t really done much in the way of posing serious legal challenges against hiring goals, save a few, according to Ben Brubeck, vice president of regulatory, labor and state affairs for the Associated Builders and Contractors.

One of the reasons for this could be that many programs require only a good faith effort or achievable mandates, he said. For example, contractors who win city-funded projects worth $1 million or more in New York City must post notices of job availability at city workforce centers. Agencies like the Department of Homeless Services and Children’s Services require that for every $250,00 in annualized contract value, one individual receiving public assistance be hired.

Another reason, he said, is the money it takes to launch a legal fight. The fear of appearing not to support the success of minority businesses and residents who might be stuck in a cycle of poverty isn't something that Brubeck has heard from the association's members. Actually, Coletti said he believes his contractors don't care about perception. "They have been put through the wringer," he said, "and more and more are willing to take that political risk."

Some contractors are likely hesitant to go head-to-head with a client, at least construction companies that hope to do future public work. "I wouldn't expect, "Leavitt said, "[that] a general contractor hoping to get city business would want to find itself on the other side of a lawsuit." He said a successful effort would more likely come from a well-funded industry group or some similar organization.

In any case, the pressure is on contractors that have to live by these hiring quotas, Coletti said, as long as the market is strong and there is an abundance of jobs to fill. And as far as sympathy for the labor conditions contractors currently face, Brubeck said many agencies are "tone deaf" to industry concerns.

"[These] folks are well-meaning," he said, "but the effect is to limit competition, and [they're the ones who] get a bad deal out of it."